Municipal budgets

Last week I mentioned a subject frequently referenced on Aware Brain; municipal budgets. This issue could be the most significant factor in the lives of Americans in the next few decades. As revenues sink, local and state governments are shedding staff and services at an alarming rate. Shedding staff contributes to even more unemployment in the area. At the same time the cuts in services have real effects on the people living within the municipality.

Two years ago I wrote that some of the consequences from municipal budget cuts could be things such as more people getting food poisoning due to fewer restaurant inspections. It looks like that was an optimistic prediction. Raymond Zack fared much worse last week in Alameda California. It seems that he drowned in the Pacific Ocean while rescuers looked on, unable to assist due to the fact their water rescue certifications and equipment had been cancelled due to budget cuts in 2010. Sorry Ray.

Economists and financial experts are envisioning an even worse future. “Local revenues probably haven’t seen the worst of it,” says Christopher Hoene, director of research at the National League of Cities. Mark Vitner, senior economist at Wells Fargo Securities, expects state and local governments to slash 20,000 to 30,000 jobs a month through the middle of 2012. Joel Naroff of Naroff Economic Advisors notes that when states cut spending to balance their budgets, as required annually, a ripple effect multiplies the damage: Companies that do business with states and localities suffer. These companies, in turn, scale back their own hiring. More than 467,000 state and local government jobs have vanished since the recession officially ended in June 2009.

Steven Leslie, financial services analyst for the Economist Intelligence Unit, a research firm, predicts that tight government spending at the local, state and federal levels will persist during a prolonged period of slow growth.